Ever since the proposed £15bn merger of J Sainsbury plc (LON:SBRY) and Walmart-owned Asda was first announced at the end of April, some analysts have been scrambling to find the nails to put in Wm Morrison Supermarkets PLC’s (LON:MRW) coffin.
The putative tie-up will create a new 800-pound gorilla of the supermarket jungle, supplanting a revitalised Tesco PLC (LON:TSCO), which is bound to ramp up competitive tensions.
READ: It’s not hard to be bearish on Morrisons
And let’s not forget Germany’s Aldi and Lidl, which show no sign of curtailing their expansion plans.
It all makes for the perfect ‘ship storm’ for Morrisons, which increasingly looks like a marginalised, subscale operation with limited growth prospects.
Well-placed to pick up disposed stores
But Barclays reckons Britain’s fourth-largest grocer could actually stand to benefit from possibly the biggest of those threats - the Sainsburys-Asda deal.
One of the bank’s main concerns was that Asda would become more aggressive in its renewed attempts to take some more of the UK supermarket pie, with the principal victim being Morrisons.
“The Sainsbury/ASDA merger proposal makes us less concerned at the near-term risk of a step-up in aggression from ASDA,” wrote analyst James Anstead in a note to clients.
Morrisons could also be in pole position to pick up some of the leftovers from merger, with Sainsbury's and Asda both likely to have to sell off some of their stores if they want the deal to be approved by competition regulators.
“While we expect Morrison to remain very disciplined on capital, we can easily imagine that the company could be well-placed to pick up a number of forced store disposals at reasonable (though probably not bargain) prices.”
Still a bear, though
With the possibility of some cheap(ish) expansion and perhaps a reduced threat from Asda, Anstead nudged his price target up by 2% to 210p (from 205p).
Given his ‘underweight’ rating, he’s still not a fan of the stock though.
In his note, he added that last week’s “reasonably positive” first-quarter results were driven by the speed of the McColl’s roll-out rather than a strong underlying performance, while he’s also not sure if Morrisons is deserving of the 20%+ share price rise it has enjoyed over the past six weeks or so.
“We think the 23% share price rise since its low of 26 March seems excessive – this exceeds the 21% increase for Tesco over the same period (which has in the meantime reported a strong set of FY results) and is not far behind Sainsbury at 35% (which has in the meantime proposed a historic – and potentially very accretive – merger with ASDA).”
Morrisons shares were down 1% to 251.1p in late-morning trading on Monday.